Shapley and Scarf showed that for any preferences that patients and their surgeons might have regarding which kidneys they would like, there was always a way to find a set of cyclical trades they called “top trading cycles,” with the property that no group of patients and donors could go off on their own and find a cycle of trades that they liked better. Organizing trades this way would help make it safe for surgeons to enroll their patients in such a market, since the patients couldn’t do better by trading differently among themselves.
As I began to play with this model, I started to think of it as the potential architecture for a centralized clearinghouse that could help traders overcome the obstacles to barter. But for such a clearinghouse to find the most desirable set of trades, it would need to have access to patients’ needs and preferences, and so participation would have to be safe in another way, too.
Since preferences are by and large private information, for a clearinghouse to work people would have to reveal this information.

…

Speed is of the essence in making these markets work differently than the “day ahead” market that already existed for limos. In some respects, these services are faster even than taxis: you don’t have to take time to pay when you reach your destination, since the same app through which you called the car will also pay the bill automatically through your credit card. This works because your original call goes through a central clearinghouse that archives your credit card details.
Perhaps you are beginning to see a pattern here and can anticipate (even build) marketplaces that don’t yet exist. Limousines have been around for a long time, and there have always been spare bedrooms that you could arrange to rent through friends. But computers and smartphones have helped Uber and Airbnb build multibillion-dollar businesses by making those markets thicker and quicker, bigger and less congested.

…

Instead of a completely decentralized market, they proposed to organize the last stage of the market through a centralized marketplace, a kind of clearinghouse. It proved to be a critical, even historic, decision.
Under the new plan, third-year medical students would apply to residency programs on their own, as before, and the residency programs would invite them to interviews, also as before. But then a change: after the interviews had been conducted, the process of making offers would be done through the new centralized clearinghouse. This meant that students would submit to the clearinghouse a rank order list of the residency programs at which they had interviewed, indicating their first choice, second choice, and so on. In parallel, those residency programs would submit a rank order list of students.
Before the clearinghouse opened, both applicants and employers would exchange information about job descriptions (including wages and other features) and about the applicants’ qualifications, so that each side could form well-considered preferences regarding the other.

(According to market design guru Al Roth, one theory holds that the term “fraternity/sorority rush,” which today describes the process by which sororities and fraternities recruit new members, comes from the frenzied competition among sororities to lock in new members.4) It’s what prompted medical residency programs to develop a centralized clearinghouse in the 1940s to fend off students receiving exploding offers before they were done with their intro to anatomy course.
These allocation problems all now have centralized clearinghouses, many designed with the basic deferred acceptance algorithm as their foundations. But that’s really all that Gale and Shapley provided: a conceptual framework that market designers have, for several decades now, been applying, evaluating, and refining. They’ve learned from its successes and, unfortunately, learned even more from its inevitable failures: modeling real-life exchanges is an imprecise, iterative process in which many of us find ourselves as experimental subjects.

…

Within a week or two, Vlachos Junior was leaving an hour before the opening bell.
What, Vlachos Senior wondered, was going on? It turned out that there weren’t quite enough coat hooks at the back of his classroom to go around, and later arrivals had to leave their jackets crumpled on a bench (apparently a source of grade school ignominy for order-loving Swedes). So the “market” for coat hooks began to unravel backward in much the same way that, in the absence of a centralized clearinghouse, residency programs and judges raced to recruit medical and law students earlier and earlier.
Now, Jonas Vlachos is hardly an apologist for the glories of free enterprise and markets. He’s from Sweden, for one thing, and Scandinavians are known worldwide for their love of big taxes and big government. More personally, Vlachos has been a vocal critic of his country’s market-like approach to education, which is based in part on the school choice vision laid out by Milton Friedman, an icon of laissez-faire ideology.

Now that the book is available to the public, we expect you, the reader, to add to this collection of questions and improvements. Perhaps your industry has unique dynamics, and you want to know how the alliance needs to adapt to those dynamics. Perhaps there’s a variation on the tour of duty framework that would work best in your company.
That’s why we’ve created TheAllianceFramework.com. This website and the related LinkedIn group will act as a central clearinghouse for additional content, interactive assessments, and even practical worksheets and training guides, to expand our collective understanding of the alliance.
You’ll also find information about keynote speaking, training sessions, and webinars.
We invite you to join us at TheAllianceFramework.com, to help us explore these issues and to help you bring the alliance to your organization.
Notes
Chapter 1
1 See http://www.nytimes.com/2001/04/08/business/off-the-shelf-after-the-downsizing-a-downward-spiral.html.
2 John Hagel III, John Seely Brown, and Lang Davidson, The Power of Pull: How Small Moves, Smartly Made, Can Set Big Things in Motion (New York: Basic Books, 2010), 12.
3 Harold Meyerson, “The Forty-Year Slump: The State of Work in the Age of Anxiety,” The American Prospect, November 12, 2013, http://prospect.org/article/40-year-slump.
4 Ibid.
5 Towers Watson 2012 Global Workforce Study, Engagement at Risk: Driving Strong Performance in a Volatile Global Environment, July 2012, http://www.towerswatson.com/en-AE/Insights/IC-Types/Survey-Research-Results/2012/07/2012-Towers-Watson-Global-Workforce-Study.
6 Susan Adams, “Trust in Business Falls Off a Cliff,” Forbes, June 13, 2012, http://www.forbes.com/sites/susanadams/2012/06/13/trust-in-business-falls-off-a-cliff/.
7 Reed Hastings, “Netflix Culture: Freedom & Responsibility,” August 1, 2009, SlideShare presentation, http://www.slideshare.net/reed2001/culture-1798664.
8 “Pixar Total Grosses,” Box Office Mojo, http://boxofficemojo.com/franchises/chart/?

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The Man Who Knew: The Life and Times of Alan Greenspan
by
Sebastian Mallaby

Moreover, the thrust of her regulatory instincts came to be widely accepted after the 2008 crisis, providing a belated vindication.9 In essence, her chief worry was that the fastest-growing parts of the derivatives market lacked the stabilizing institutions of traditional, exchange-traded equities or futures, with the result that the whole market could descend into chaos if a large trading firm declared bankruptcy. One such stabilizing institution was the central clearinghouse, which stood between buyer and seller and guaranteed payments on trades; unnervingly, non-exchange-based derivatives were traded “over the counter,” with banks entering into swap contracts directly with each other—there was no third-party guarantee that obligations would be honored. Another stabilizing institution was the requirement that traders put down money, or “margin,” to cover their potential debts; in over-the-counter markets, there were no standard margin requirements, so the potential losses from nonpayment were larger.

…

The day after the government takeover of the GSEs, Lehman Brothers entered its own death spiral.
Unlike Fannie and Freddie, Lehman Brothers fell into the Bear Stearns category: it was a poster child for the financial practices that Greenspan had defended.40 It was party to almost a million bilateral derivatives contracts, those over-the-counter deals that Brooksley Born had wanted to move into centralized clearinghouses. It was also an enthusiastic responder to the incentives created by the Fed: it had borrowed billions in short-term funds, loading up on cheap money while interest rates were low and using it to buy higher-yielding mortgages. In Greenspan’s more hopeful moments, he had trusted that Lehman would take such risks only if it had sufficient capital to absorb losses. In the absence of adequate capital buffers, after all, other savvy institutions should have refused to trade with it: Why enter into a swap contract with a firm that might fail and renege on it?

…

Understanding that market discipline was fallible, but fearing correctly that regulation might also fail, Greenspan could have pushed harder for that regulatory third way: mechanisms to ensure that when the inevitable failures did occur, the damage could be minimized. Thicker capital cushions were an obvious example—Timothy Geithner had tried and failed to get this done, but he might have achieved more given stronger support from the Fed chairman. Pushing over-the-counter derivatives into central clearinghouses was another example: had Greenspan thrown his weight behind a sounder version of Brooksley Born’s proposal, it might have been harder for AIG to accumulate a swaps portfolio so large that it menaced the entire economy.42 Discouraging too-big-to-fail lenders was yet a third example of a path not taken: during the crisis, large banks, investment banks, and shadow banks were exposed as having been more reckless than supposedly risky hedge funds, because the latter were small enough to fail, and so had fewer corrupting incentives.43 Forcing more regulation onto the shadow-banking sector could have been the final item on a resiliency agenda.

In reality, what they will do initially is to pick and choose what they like and disregard what they do not like about it.
Although a global bank or exchange is not happening any time soon, the feelings and behaviors of a global bank are needed. The blockchain can help.
The Financial Services sector will need to stall new regulation while simultaneously updating the existing regulation to accommodate the innovation introduced by the blockchain.
The litmus test is to run transactions without a central clearinghouse in the middle. Verifying identity and validating counterparties can be done in a peer-to-peer manner on the blockchain, and that is the preferred method that organizations should be trying to perfect.
Strategic decisions await financial institutions, and they must have the courage to leapfrog, and not just advance to the next level playing field and be content with it.
NOTES
1. PayPal “Who we are,” https://www.paypal.com/webapps/mpp/about.
2.

However, you will still need time for processing—going through all of your day’s notes and communications and distilling them down to the primary elements. For those who still take paper notes and appreciate tangible project management, you will want to use a tangible in-box—a general pile of stuff that has yet to be classified. Most productivity frameworks—like David Allen’s Getting Things Done—suggest such a central clearing-house for all of the stuff that you accumulate but can’t immediately execute or file. This in-box is not a final destination, but rather a transit terminal where items await processing. During a busy day of meetings, you will not have time to start taking action or filing things away.
How about all of the digital stuff that flows in every day? Your e-mail in-box is the primary landing spot, but information also flows into other online applications.

Having regulators know exactly what CDSs are outstanding and where they are can only help in their efforts to maintain a stable financial system.
Other financial instruments can also, in Warren Buffett’s memorable phrase, become “financial weapons of mass destruction.” Public disclosure of terms and conditions should be a requirement before any financial instrument can be tradable or transferable.38 While CDS terms are becoming standardized, thanks to the International Swaps and Derivatives Association, there is no central clearinghouse of such instruments.39
We could also use information to keep our regulators on their toes. If we want financial markets around the world to be effective, why isn’t there a global rating of regulators? Since investors can be expected to gravitate to the most trustworthy financial centers, such a rating might help create a race to the top, rather than one to the bottom. The Financial Stability Board has already identified “Key Standards for Sound Financial Systems.”40 What is missing is a commitment from the FSB to publish a market-by-market assessment of how well each market adheres to the standards.

It demolishes the “bigness” of the old institution—the “invisible primary” of money and major donor access—by taking advantage of a fundamental characteristic of radical connectivity: the ability to connect everyone equally. With enough time and energy, anyone can use ActBlue to build a political money power base within the Democratic Party—not just W. Averell Harriman or Hillary Clinton. And yet as a central clearinghouse, ActBlue is in its own way Big; it just hasn’t wielded its big power yet, preferring to remain a boring (but vital) piece of infrastructure. To that extent, ActBlue may provide one important structure for revamping our parties so that they are democratic and yet still capable of producing serious leaders addressing serious issues.
Meetup
Of course, politics is about more than money.

Grim human alignments became, in their cool vistas, delicate symphonies in white…. Doctors ruled, for me, so gently, the whole still concert.”
Behind this still concert lay Welch, the impresario. By the first decade of the twentieth century, Welch had become the glue that cemented together the entire American medical establishment. His own person became a central clearinghouse of scientific medicine. Indeed, he became the central clearinghouse. As founding editor of the Journal of Experimental Medicine, the first and most important American research journal, he read submissions that made him familiar with every promising new idea and young investigator in the country.
He became a national figure, first within the profession, then within science, then in the larger world, serving as president or chairman of nineteen different major scientific organizations, including the American Medical Association, the American Association for the Advancement of Science, and the National Academy of Sciences.

Besides the phoney trade confirmations and account statements that had been generated for more than a decade, he had set up the bogus “trading platform” that made it appear as if actual trades were being conducted with European counterparties, although the reciprocal trader was actually an employee on another computer terminal hidden in a different room. And he had the clincher: apparent proof that all the stocks he claimed to have purchased were safely held in Madoff’s account at Wall Street’s central clear-inghouse, the Depository Trust & Clearing Corporation, officially called the DTCC but known informally among veteran traders as “the DTC”.
This was the acid test for DiPascali’s masterpiece, a computer simulation of a live feed from the DTCC. He had taken care to duplicate exactly the clearinghouse’s logo, the page format, the printer font and type sizes, and the paper quality of actual DTCC reports.

…

The Gateway fund actually tracked the Fairfield Sentry fund fairly closely from 1993 until about 1997; thereafter the disparity between the two funds widened sharply as Gateway became more volatile and less profitable.
118 “Never in my wildest dreams did I think I would have partners like these”: Michael Carroll, Hal Lux, and Justin Schack, “Trading Meets the Millennium,” Institutional Investor, January 2000, pp. 36–53.
118 “Market timing and stock picking are both important for the strategy to work”: The Ocrant article in Markopolos, No One Would Listen, p. 292.
119 The following week, a similarly sceptical view: Erin Arvedlund, “Don’t Ask, Don’t Tell,” Barron’s, May 7, 2001.
119 “Much of it I thought was, frankly, just irresponsible journalism”: Galvin Fairfield Greenwich Complaint, transcript excerpts from interview with Jeffrey Tucker, Mar. 12, 2009, p. 97. (Excerpts were also cited as Exhibit 85 in Picard v. Fairfield Greenwich Amended Complaint.)
119 “Come up this afternoon”: According to Tucker’s testimony, Madoff extended a similar invitation that day to Carlo Grosso, a principal of the Kingate funds based in London, who was visiting New York.
119 Wall Street’s central clearinghouse, the Depository Trust & Clearing Corporation: Originally named the Depository Trust Company, the clearinghouse later combined with a separate clearinghouse called the National Securities Clearing Corporation, on whose board Madoff served in the late 1980s, and was renamed the Depository Trust & Clearing Corporation, or DTCC. According to the official DTCC history, the clearinghouses were “both created in response to the paperwork crisis that developed in the securities industry in the late 1960s and early 1970s.

A similar effect was documented by Stoll and Whaley (1990): for returns measured in
5-minute intervals, both S&P 500 and money market index futures led stock
market returns by 5 to 10 minutes.
The quicker adjustment of the futures markets relative to the equities markets is likely due to the historical development of the futures and
198
HIGH-FREQUENCY TRADING
equities markets. The Chicago Mercantile Exchange, the central clearinghouse for futures contracts in North America, rolled out a fully functional
electronic trading platform during the early 1990s; most equity exchanges
still relied on a hybrid clearing mechanism that involved both human
traders and machines up to the year 2005. As a result, faster informationarbitraging strategies have been perfected for the futures market, while
systematic equity strategies remain underdeveloped to this day.

Operators of “critical infrastructure”—which could be broadly defined to include electrical companies, nuclear power plant operators, banks, software manufacturers, transportation and logistics companies, even hospitals and medical device suppliers, whose equipment could be hacked remotely—would be required by law or regulation to submit the traffic to and from their networks for scanning by an Internet service provider. The provider would use the signatures supplied by the NSA to look for malware or signs of a cyber campaign by a foreign government. It was a version of Alexander’s original plan to make the NSA the central clearinghouse for cyber threat intelligence. The NSA wouldn’t do the scanning, but it would give all the requisite threat signatures to the scanner. That helped the NSA avoid the impression that it was horning its way into private computer networks, even though it was actually in control of the whole operation. Once the scanners detected a threat, NSA analysts would move in and assess it. They would decide whether to let the traffic pass or to block it, or, if need be, to strike back at the source.

Such a blinkered and self-serving view of the world may be forgivable in a young entrepreneur trying to get an ambitious technology company off the ground, but as Google has grown and its influence expanded, its hubris has become a problem. It accounts for many of the missteps that have stained the company’s reputation in recent years.
EDWARDS’S STORY ends when he leaves the company in March of 2005. In the years since, Google’s power and influence have only grown. It has become the web’s central clearinghouse for information and one of the internet’s principal tollgates. As people spend more time and do more things online, they also perform more Google searches and click on more Google ads—and the business’s coffers swell. But the company’s recent history is not quite as buoyant as its bottom line suggests. While it has introduced several attractive products, such as the Android operating system for smartphones and the Google Apps suite of cloud-computing programs, it has failed to discover strong new sources of profit.

Meanwhile, the currency they employ—bank-issued reserve notes—is itself the product of a trusted central authority that also charges for its services. This, as we have seen, is an even bigger drag on the potential velocity of money.
What good is a distributed network like the Internet if all the actors on it still depend on central authorities in order to engage in peer-to-peer activity? How is it truly peer-to-peer if it goes through a central clearinghouse? It’s still a bunch of decentralized individuals, each interacting with a monopoly platform—a new front end on the same old system.
These are the problems that the next generation of digital transaction networks are aiming to address. How can a distributed network of participants transfer and verify value collectively, without the need for a central authority? Is that even possible? Could a money system look and act less like iTunes and more like BitTorrent, where, instead of depending on a platform monopoly to negotiate everything, all the participants use protocols to interact with one another directly?

In theory, hundreds of swaps, or more, can be written on a single bond. More commonly, swaps are written on baskets of hundreds or thousands of bonds and on other kinds of loans. They could metastasize without end—and did—reaching a value of more than $60 trillion a decade after Weinstein arrived on the scene.
What’s more, since the trades were commonly done on a case-by-case basis on the so-called over-the-counter market, with no central clearinghouse to track the action, CDS trading was done in the shadow world of Wall Street, with virtually no regulatory oversight and zero transparency. And that was just the way the industry wanted it.
Soon after Weinstein took the job, his boss (not Tanemura) jumped ship. Suddenly he was the only trader at Deutsche in New York juggling the new derivatives. It was no big deal, or at least it seemed that way.

Agencies which have established organizational structures outside their Federal laboratories, which have as their principal purpose the transfer of federally owned or originated technology to State and local government and to the private sector may elect to perform the functions of this subsection in such organizational structures. No Office of Research and Technology Applications or other organizational structures performing the functions of this subsection shall substantially compete with similar services available in the private sector.
(d) Dissemination of technical information
The National Technical Information Service shall
(1) serve as a central clearinghouse for the collection, dissemination and transfer of information on federally owned or originated technologies having potential application to State and local governments and to private industry;
(2) utilize the expertise and services of the National Science Foundation and the Federal Laboratory Consortium for Technology Transfer, particularly in dealing with State and local governments;
(3) receive requests for technical assistance from State and local governments, respond to such requests with published information available to the Service, and refer such requests to the Federal Laboratory Consortium for Technology Transfer to the extent that such requests require a response involving more than the published information available to the Service;
(4) provide funding, at the discretion of the Secretary, for Federal laboratories to provide the assistance specified in subsection (c) (3) of this section;
(5) use appropriate technology transfer mechanisms such as personnel exchanges and computer-based systems; and
(6) maintain a permanent archival repository and clearinghouse for the collection and dissemination of nonclassified scientific, technical, and engineering information.

Thus, while consciousness is a mirror that reflects what our senses tell us about what happens both outside our bodies and within the nervous system, it reflects those changes selectively, actively shaping events, imposing on them a reality of its own. The reflection consciousness provides is what we call our life: the sum of all we have heard, seen, felt, hoped, and suffered from birth to death. Although we believe that there are “things” outside consciousness, we have direct evidence only of those that find a place in it.
As the central clearinghouse in which varied events processed by different senses can be represented and compared, consciousness can contain a famine in Africa, the smell of a rose, the performance of the Dow Jones, and a plan to stop at the store to buy some bread all at the same time. But that does not mean that its content is a shapeless jumble.
We may call intentions the force that keeps information in consciousness ordered.

Bloomberg machines have become the lifeblood of the industry, and they make readily available almost all of the data an SEC staffer needs for conducting a basic fraud analysis. Not funding these machines saves money but costs a fortune.
Eleventh, as a policy, encourage whistleblowers. This is nearest and dearest to my heart and is the bottom line if the SEC intends to recover its reputation from this debacle. It has to open up an active Office of the Whistleblower to provide a central clearinghouse for complaints, which currently are handled ad hoc by 11 regional offices. According to the Association of Certified Fraud Examiners’ 2008 Report to the Nation, whistleblower tips detected 54.1 percent of uncovered fraud schemes in public companies. External auditors (and the SEC exam teams would certainly be considered external auditors) detected a mere 4.1 percent of the uncovered fraud schemes.

If there is any wiggle room, excessive risk-taking and other damaging behavior will simply migrate to the unregulated sector. Imposing restrictions on the biggest hedge funds and private equity firms could well lead to a drastic shrinkage in these industries, which would be no great loss. Much of the activity that such firms engage in amounts to a zero-sum game, which doesn’t yield any economic gains for society at large.
The proposed central clearinghouse for derivatives transactions is a good idea that doesn’t go far enough. By imposing leverage limits on traders, and demanding adequate collateral for exposed positions, the clearinghouse could eliminate a lot of counterparty credit risk. Unfortunately, the administration’s proposal applies only to “standardized” derivatives. Firms such as Goldman Sachs and Morgan Stanley would still be allowed to trade “customized” derivatives without public disclosure or central clearing.

Those offsets allow a university to burn the same fossil fuels, operate the same inefficient buildings, and waste as much material as ever, but pay for someone else to plant trees, perhaps in another country, or develop a wind farm in Texas. I can understand why they might find this approach attractive. Compared with the costs of reducing their own footprint, buying an offset can look very cost effective. And, very often, these offsets are both real and meaningful. Though there is no central clearinghouse to certify their legitimacy, they can still be examined and certified by independent third parties. When the offsets meet a set standard—and that standard requires independent verification, record keeping, and auditing measures—colleges and universities can have some faith in them. Are there abuses? Probably. But it is surely better than nothing. Yet it’s quite possible that there are more than a few offsets out there that have accomplished very little in the way of sustainability, no matter who bought what and for how much.

Too free a use of signal-intelligence information revealed its existence, causing the targets to change their methods of encryption, and so compromising the source. Using it too little, on the other hand, was as bad as not having it at all. Unfortunately, the intelligence services leaned more to the latter than the former. The creation of a new Department of Homeland Security had, theoretically, set up a central clearinghouse for all threat-related information, but the size of the new superagency had crippled it from the get-go. The information was all there, but in too great a quantity to be processed, and with too many processors to turn out a viable product.
But old habits died hard. The intelligence community remained intact, a super-agency overtop its own bureaucracy or not, and its segments talked to each other.

An advertiser still needed its old ad server to show ads on Google-controlled Web properties and everywhere else. This glittering vision in Facebook Blue of everything running on Facebook would take years to realize.
By comparison, the value of the open plan would be realized instantaneously. If FBX had access to the identity matching we’d built on the Custom Audiences side, not to mention ads inventory on mobile, then the exchange could serve as a central clearinghouse for online identity everywhere. Everything we were ideating around identity, that entire spiel I regaled you with about names, both online and off, could be realized in a few weeks, all due to the open and standardized nature of FBX. And all of it implemented with three engineers and one cocky product manager, and not the roomful of bickering, big-company clowns that every meeting on the matter tended to feature.

To put finance back into the service of the real economy, you have to simplify, simplify, simplify. To do that, you have to increase transparency about what’s happening in the first place. In the commodities arena, former CFTC chairman Gary Gensler fought the good fight for stricter regulation of derivatives, bringing a large chunk of the swaps market out of the shadowy darkness and into central clearinghouses where it can be more easily regulated. In the United States most commodities-linked OTC derivatives are now subject to central clearing. The CFTC has also made big progress on real-time reporting and registration of brokers, so that people actually know who’s doing the trading.
But achieving even this level of regulation has been a long, hard slog. Thanks to its relentless lobbying of Congress, the administration, and regulators both in the United States and overseas, Wall Street has succeeded in carving out important loopholes in the Dodd-Frank derivatives rules.

The group rallied in protest on November 22, the date given in Atlas Shrugged for Galt’s delivery of his famous sixty-page speech. The small band of libertarians waving black flags with dollar signs in front of the Philadelphia Federal Courthouse was largely misunderstood, with several passersby accusing them of Communist sympathies.27 Even a reading of Galt’s individualist oath did little to clarify the protest’s intent.
However inscrutable to outsiders, SIL quickly emerged as the central clearinghouse for the libertarian movement by dint of its free-form membership structure and the enthusiasm of its founders. Immediately after its birth SIL claimed 103 chapters, and at its first-year anniversary boasted thirteen hundred members, three thousand persons in contact with the organization, and 175,000 pieces of literature distributed.28 The 1972 directory of SIL was fat with libertarian organizations.

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Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase
by
Duff McDonald

There have been some suggestions that the interplay between a company’s bonds and its credit default swaps actually exacerbated problems—George Soros wrote convincingly about this phenomenon in the New York Times—but that phenomenon was arguably on the margin of a much larger problem: abandonment of risk management controls in pursuit of higher profits. When it came time for the first big test of credit default swaps—in the aftermath of Lehman Brothers’ bankruptcy—the settlement of those contracts took place without incident on October 21, 2008.
Dimon has endorsed the creation of a central clearinghouse so derivatives exposures can be more closely monitored. But he considers the bank’s CDS business a valuable franchise and doesn’t consider it JPMorgan Chase’s problem if other investors hurt themselves by mishandling them. (Pointing to a healthy lobbying budget on this score, critics argue that even though he’s said the right thing publicly, Dimon and his team are actually stonewalling derivatives reform in order to protect the outsize margins the business generates.)

Some technologies could help. For instance, increasingly ubiquitous sensors, as we are seeing with the Internet of things, could make possible the monitoring of far more of our actions and outcomes. Increased computer power could make it possible to simulate, choose, and store decisions for many future possible outcomes, and networks could make it possible to bring all this data and information to central clearinghouses for adjudication and resolution. But as fast as computers enable one party to anticipate outcomes, they enable other parties to consider more complex possibilities. Like the Red Queen in Alice in Wonderland, machines would have to run ever faster just to keep track of all the contingencies being generated. In the end, contracts would still be incomplete.
The Company of the Future Will Actually Be Pretty Boring
Companies also exist because they serve several other economic and legal functions that would be difficult to replicate in a world made up only of freelancers who constantly wrote contracts to work together.

This is the provision of the Bitcoin protocol that simultaneously incentivizes distributed work, and deters attempts at forgery: doing the gruntwork of validating previous transactions is the only way new Bitcoin gets made.12
This move kills quite a few birds with a single cryptographic stone. It neatly circumvents the problem of a mint arbitrarily diluting the value of existing currency by flooding the market with new coinage: we know the exact schedule on which new coins will be minted, and by what rules. It eliminates any need for a trusted intermediary to reconcile transactions: not through recourse to any central clearinghouse, but by consulting the local copy of a shared record that is annealed with all the others every time a block is confirmed. And it cunningly allows the network to insulate itself against forgery via proof-of-work, the very mechanism of artificial scarcity that underwrites Bitcoin’s value in the first place.
What happens if someone does try to spend a given coin twice, erase the record of a payment, or otherwise tamper with consensus history?

Brownlee said the records showed how the company was training salespeople to sell OxyContin as if it were nonaddictive and did not provoke withdrawal symptoms. Physicians, therefore, could feel comfortable prescribing it for many kinds of pain.
“One of the pieces of evidence that was looked at were ‘call notes.’ The company had a process in which salesmen would go to a doctor, then summarize what was discussed. That went back to a central clearinghouse. Once we were able to see those, we began to see a pattern of conduct. Is this a few rogue guys or is this more of a corporate policy? It became clear that this was more than a few rogue [salesmen]. They were trained to sell the drug in a way that was simply not accurate. That was some of the best evidence of misbranding.
“It was an extremely high percentage of sales reps in various states who were making these allegations.

The revised report said that 3,646 people were wounded by terror attacks in 2003, more than double the number in Black’s original report, while 625 were killed, dwarfing the report’s original count of 307.92 As Krugman observed, Black and other officials blamed the errors on “‘inattention, personnel shortages and [a] database that is awkward and antiquated.’ Remember: we’re talking about the government’s central clearinghouse for terrorism information, whose creation was touted as part of a ‘dramatic enhancement’ of counterterrorism efforts more than a year before this report was produced. And it still can’t input data into its own computers? It should be no surprise, in this age of Halliburton, that the job of data input was given to and botched by private contractors.”93 Bush’s Democratic challenger in the 2004 presidential election, John Kerry, charged through a spokesperson that Bush was “playing fast and loose with the truth when it comes to the war on terror,” adding that the White House “has now been caught trying to inflate its success on terrorism.”94 There was talk of heads rolling at the State Department over the report, but not Black’s.

Harvey,” while possessing a brilliant and daring mind for business, had absolutely dreadful handwriting.
Although Dave had started as little more than a bookkeeper, two years later Fred had him running the day-to-day operations for the entire chain—now more than a dozen different locations spread out over eleven hundred miles between Topeka and the western border of New Mexico. The Kansas City office became the communications hub of the company. It was also the central clearinghouse for the large amounts of cash generated by the eating houses. From the very beginning in Topeka, it was not uncommon for each house to generate at least $250 ($5,200) in pure profit each month. Many of them made much more—enough so that in locations that were less profitable, as long as the managers were doing a good job, they were told to maintain standards even if it meant running deficits.

An example of such fake arm’s-length relations is provided by the system of German public banks, in which local savings banks, which are active in retail banking, collect more funds from depositors than they can use themselves and automatically invest large parts of their surplus funds with the Landesbanken, which are active in investment banking. In any arrangement, the key question is how to ensure proper governance for the funding of risky investment banking activities.
46. Attempts to form central clearinghouses for derivatives might actually create new and particularly dangerous systemically important institutions. Being owned by the participating banks would make the clearinghouses highly connected. It is essential that they have sufficient ability to absorb losses without needing any support from banks or from the government. Regulating them effectively would be critical. If more derivatives were traded on exchanges, this might increase financial stability without much harm to the economy.

Having identified the most appropriate flight for a customer, the agent would then telephone the airline—or multiple airlines, perhaps, in the case of connecting flights—and make the appropriate reservations. The agent wrote each ticket by hand or wheeled it through a typewriter, compiled a written itinerary, collected the fare, and sent the money (less the commission, then fixed by the CAB at 5 percent) to a central clearinghouse, which in turn disbursed it to the airlines. Travel agents had to maintain a bundle of phone lines and a stable of clerks, typists, and reservationists while managing a library of travel literature to advise clients on vacation destinations and business arrangements. But what if the travel agents could go on-line? With a few keystrokes they would have instant electronic access to the schedules, eliminating the need to turn all those pages in the OAG.

Since 1841 Kew Gardens, Queen Charlotte’s delicious belvedere beside the Thames outside London, had been a State institution, where all available botanical knowledge was considered, sifted and turned into green delight or sustenance; and by the middle of the century Kew had its derivatives or ancillaries in most of the British possessions—part pleasure-places, part scientific laboratories, with their learned keepers and their catalogues, experimenting, classifying, and sending a copious flow of samples, products or memoranda back to the central clearing-house at home. One important outpost in this chain of research was Jamaica, and a visitor to that island making a tour of its botanical gardens might be deluded into supposing that the British Empire was already a cohesive, centralized organization. Each of the three island gardens, each in a different climatic zone, played its own particular part in research, with its own specialities, its own methods, and its own team of diligent scientific gentlemen.

Notwithstanding its mix of international delegates, and even though it boasted an American president, it was firmly under Nazi control from 1940 on.3
The German BIS representatives were Baron Kurt von Schröder, a leading banker and Gestapo officer; Hermann Schmitz, the chief of the industrial conglomerate I. G. Farben; Walter Funk, Reichsbank president; and Emil Puhl, an economist and vice president of the Reichsbank.4 Under their influence, BIS became a central clearinghouse for emptying gold reserves from countries such as Austria, Belgium, and Czechoslovakia.5
“Washing gold” was the euphemism for how BIS described bringing bullion covertly into Switzerland and converting it into untraceable cash, usually Swiss francs.6 About 80 percent of all Reichsbank gold sent abroad was laundered through Switzerland.7 In early 1942, Puhl—who oversaw BIS’s gold program—shared with Funk that the Gestapo had begun depositing gold from concentration camps into the Reichsbank.8 By that November, an internal Reichsbank report noted that it had received an “unusually great” amount of smelted dental gold.9 In 1943, the Reichsbank received the first packets of gold stamped “Auschwitz” (it is impossible to determine precisely how much gold the SS sent to the Reichsbank since the records of those shipments that were seized by the U.S. military later disappeared; the United States failed to make copies before returning the documents to the predecessor of the Bundesbank, where the files were destroyed, allegedly as part of routine maintenance).10,I
BIS was involved in far more than washing gold.

These people believe that derivatives act to stabilize the economy, facilitate trade, and eliminate bumps for individual participants.” On a micro level, Buffett wrote, these things often were true, but on a macro level, derivatives could someday cause midair collisions over Manhattan, London, Frankfurt, Hong Kong, and other parts of the globe. He and Munger believed that derivatives should be regulated, more disclosure should be required, they should be traded through a central clearinghouse, and the Federal Reserve should act as a central banker to the major investment banks, not just the commercial banks. Federal Reserve Chairman Alan Greenspan, however, defended the unregulated market and made sport of Buffett’s wariness.10 Buffett’s “financial weapons of mass destruction” was quoted everywhere, often paired with a question about whether he was overreacting.11
Even as early as 2002, however, the beginnings of mass destruction could be seen in the mobile-home industry.